As the small-cap index falls more than 4%, Capitalmind warns of further corrections

After the BSE 250 small-cap index fell 4.5 per cent in today’s session, company tracker Capitalmind Financial Services said the continued weak earnings momentum could lead to a correction in the small-cap index.

PMS also noted that the BSE Smallcap 250’s P/E multiple has increased by 63% over the past year, while earnings per share (EPS) remained unchanged at -3%.

The above shows that the increase in the P/E multiple of BSE Smallcap 250 last year was mainly due to price increases.

Analyzing data from December 1, 2017 to July 11, 2024, Capitalmind Financial Services concludes that the median 6-month returns are best when the P/E ratio is below 20, and the median 6-month returns are 25.2%. The median 6-month returns become negative when the P/E ratio is above 30. The worst median 6-month returns are in the P/E range of 35-40.

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Over the past four years, from July 2020 to July 2024, the percentage of stocks with a PE ratio of less than 30 decreased from 76% to 37%. During the same period, the PE range between 30 and 50 increased from 13% in July 2020 to 29% in July 2024. During the same period, the PE range above 50 increased from 11% to 33%.

The BSE 250 small-cap index was trading in the red today with Cera Sanitaryware, PCBL, Tamilnad Mercantile Bank, TTK Prestige, V-Guard Industries and Aegis Logistics defiant of the overall market sentiment.

Meanwhile, MMTC, CAMS, Firstsource Solutions and KNR Constructions were the biggest losers in the index, falling by as much as 7.2%.

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